Rates
Q: What is your rate on a 30 year fixed mortgage?
This is the most frequently asked question of all. The answer is always the same:
It depends who’s doing the asking and when. Mortgage interest rates change daily and can vary significantly depending on the term, type of the loan and the financial fitness of the borrower.
Q: What personal financial factors go into determining the rate I can qualify for?
Here are the Top Ten that apply to most borrowers:
1. Your credit score
2. For purchases, the size of your down payment; for refinancing, the loan-to-value ratio
3. Whether the home is your primary residence vs. a vacation or investment property
4. If you can document your past two years income in the same line of work
5. How many mortgage payments you have in savings AFTER all loan transaction costs are paid
6. If you have had any late mortgage payments during the past two years
7. For first time buyers: if you can document a positive rental payment history for the past two years
8. For refinancing, the rate is generally higher if you are taking cash out
9. For second mortgages, the rate can be more favorable if you make your payments though automatic bank debit
10. The number of discount or origination points you pay (see Closing Costs)
Your loan officer can identify any additional factors that may apply in your situation. It’s our job to help you put all the variables in your favor and secure the best rate possible.
Closing Costs
Q: What are Closing Costs?
There are a variety of specialized professional services that come into play throughout the loan application, approval and funding process. Some closing costs pay for these services; others are required by the lender to ensure timely payment of property taxes and insurance premiums.
Q: What are Points and Origination Fees?
A point is 1% of the loan amount. If your loan is for $200,000, “one point origination fee” means you are charged $2,000. Typically, there is a 1% origination fee for a new purchase or refinance loan, but this can vary. This fee compensates your mortgage broker and loan officer. Be aware that some mortgage brokers advertise “No points!” Typically, they are able to do so by steering the borrower into a higher interest rate loan. Thus, the lender makes more money in interest over the life of the loan and compensates the mortgage broker in the form of a rebate. Q: Am I better off paying a lower origination fee (“fewer points”) or securing a lower interest rate?There is no universally right answer to the point vs. rate dilemma. Your loan officer can help you do the math and weigh the pros and cons of each strategy to determine the approach that’s optimal for you based on personal variables such as the length of time you plan to stay in the home.
Q: What are Discount Points?
You may have the option to pay an additional percentage of your loan amount to secure a lower interest rate. Ask your loan officer if this makes sense for you.
Q: What is a Processing Fee?
Your loan officer works with a loan processor who manages and tracks all paperwork and communication throughout the application, approval and funding process. The loan processor ensures that all lender requirements are met and that the loan funds on time. The processing fee is typically a flat fee rather than a percentage. It pays for the processor’s services and other administrative costs such as document copying and distribution.
Q: What other fees does the borrower typically pay?
• Credit Report Fee. - usually $15 - $25.
• Underwriter Fee. An underwriter works for the lender and ensures that borrower’s application is complete and that it meets the lender’s underwriting requirements. This fee is charged by the lending institution, not the mortgage company.
• Tax Service, Flood Certification, Wire Fee, and Appraisal Review. These are all set fees charged by the lender for third- party services required to complete the underwriting process.
• Appraisal Fee. Because the property being purchased secures the loan, the lender must confirm the market value. An appraisal typically costs $400 - often more for a construction loan, or less if the lender only requires a drive-by appraisal.
NOTE: The appraisal differs from the property inspection. The inspection is conducted at the buyer’s discretion in order to determine the condition of the home, not the market value.
Q: Can I save on fees by “shopping around”?
The fees listed above may vary among mortgage companies and lenders, but as in the case of brokers who offer “No Points!” make sure that you’re not paying a higher interest rate or another fee to offset free or discounted mortgage broker services. However, your mortgage broker has no control over the fees described below:
• Escrow Fee. An escrow officer serves as an unbiased third party in the loan transaction to make sure all the documents are processed accurately and the funds are distributed correctly. Escrow fees are based on the purchase price (or loan amount in the case of refinancing) and vary depending on the escrow office. Since escrow handles so many different parts of the transaction, their fees can be difficult to predict until a few days before closing.
• Title Search and Title Insurance Fee. The title fee is on a sliding scale based on the loan amount. A title search is a detailed examination of the historical records of the property. These include deeds, court records, property and name indexes and a variety of other documents. The purpose of the search is to make sure the buyer is purchasing the property from the legal owner and that there are no liens or outstanding restrictive covenants that could adversely affect the transferability or value of the property. For refinance loans, the title search also ensures that the borrower does not have any new liens, such as from creditors or the IRS, that would preclude the lender from taking first lien position in the event of foreclosure.
More questions about closing costs? Call us at 206.789.8629. We’ve never been stumped.
FREQUENTLY ASKED QUESTIONS ON CLOSING COSTS & RATES
Q: What is the difference between True Closing Costs and Recurring Closing Costs?
All of the fees described above are true closing costs, or one-time transaction fees. The fees described below are recurring closing costs, which are incorporated into your regular mortgage payment. These include interest, home-owners’ insurance and property taxes. Be aware that some mortgage companies do not include recurring costs into their good faith estimates, so be sure request clarification when comparing mortgage services.
• Pre-paid Interest. Depending on when your loan closes, you may pre-pay the interest that accrues for your loan from the day of closing until the end of the month.
• Hazard insurance Premium. If you are purchasing a house, the lender requires that a full year’s premium is paid in advance. If you are refinancing, the amount you pay at closing depends on how much of the annual premium has already been paid.
• Hazard insurance Impounds. If, as most borrowers do, you elect to include your insurance and taxes in your mortgage payment, the lender requires a cushion of funds in advance (typically three-months of insurance payments) to ensure uninterrupted coverage in the event of late mortgage payments.
• Property Tax Impound. This is another cushion the bank collects to ensure payment of property taxes. The amount you pay depends on the month your loan closes. For new purchases, it is typically the equivalent of six months payments. For refinances, it is typically three to four months, unless your six-month taxes are due that month, in which case it could be as much as nine months.
NOTE: For refinance loans, if you had your taxes and insurance paid through your previous loan, after your new loan closes, you will receive a refund of the money remaining in your previous impound account. As you can see, there are a number of variables that determine your closing costs, which is why it can be difficult to estimate your final costs to the dollar.
Q: Does the borrower pay all the closing costs?
For refinance loans, yes, but they are typically added to the loan amount, so you have no out-of-pocket fees. For purchases, borrowers typically pay the closing costs to escrow along with their down payment. A common alternative is for the buyer/borrower to negotiate to have the seller pay a portion of the closing costs. Discuss this option with your realtor. If you have put earnest money down, you will only need to pay the difference between that amount and your closing costs. If your earnest money plus the seller-paid closing costs exceed the total closing costs, you will receive a refund after the loan closes.
All of the fees described above are true closing costs, or one-time transaction fees. The fees described below are recurring closing costs, which are incorporated into your regular mortgage payment. These include interest, home-owners’ insurance and property taxes. Be aware that some mortgage companies do not include recurring costs into their good faith estimates, so be sure request clarification when comparing mortgage services.
• Pre-paid Interest. Depending on when your loan closes, you may pre-pay the interest that accrues for your loan from the day of closing until the end of the month.
• Hazard insurance Premium. If you are purchasing a house, the lender requires that a full year’s premium is paid in advance. If you are refinancing, the amount you pay at closing depends on how much of the annual premium has already been paid.
• Hazard insurance Impounds. If, as most borrowers do, you elect to include your insurance and taxes in your mortgage payment, the lender requires a cushion of funds in advance (typically three-months of insurance payments) to ensure uninterrupted coverage in the event of late mortgage payments.
• Property Tax Impound. This is another cushion the bank collects to ensure payment of property taxes. The amount you pay depends on the month your loan closes. For new purchases, it is typically the equivalent of six months payments. For refinances, it is typically three to four months, unless your six-month taxes are due that month, in which case it could be as much as nine months.
NOTE: For refinance loans, if you had your taxes and insurance paid through your previous loan, after your new loan closes, you will receive a refund of the money remaining in your previous impound account. As you can see, there are a number of variables that determine your closing costs, which is why it can be difficult to estimate your final costs to the dollar.
Q: Does the borrower pay all the closing costs?
For refinance loans, yes, but they are typically added to the loan amount, so you have no out-of-pocket fees. For purchases, borrowers typically pay the closing costs to escrow along with their down payment. A common alternative is for the buyer/borrower to negotiate to have the seller pay a portion of the closing costs. Discuss this option with your realtor. If you have put earnest money down, you will only need to pay the difference between that amount and your closing costs. If your earnest money plus the seller-paid closing costs exceed the total closing costs, you will receive a refund after the loan closes.
